What role does cash play post-COVID-19?

Any heist movie set in the pandemic era would have to be a farce. Those armoured trucks you see driving around? They’re largely empty. Don your balaclava, grab your steel-cutting saw, burst into one, and you’ll find a lot of unused space.

Why? We pay by card now. Or by phone. Companies collect cash only from the hardcore few who are yet to adapt. Cash use is in terminal decline.

“High cash users are more likely to be older, have lower household income, live in regional areas, and/or have limited internet access,” the Reserve Bank said.

Cash still needs to be collected and moved around — there’s just a lot less of it, the RBA says. As a result businesses involved in its logistics and distribution are in a spot of bother.

This chart shows RBA estimates of use of cash depots: they are quiet indeed.

The RBA is in charge of our cash system, and it is concerned. “The combination of high fixed costs and lower processing volumes is likely to be having a material effect on the profitability of some businesses in the cash distribution system,” they write, as they kick off a big review of how banknotes move around our economy.

The two big players in the armoured truck business are Linfox and Prosegur. Linfox is a private company so we can’t say much about how it is going, but Prosegur Cash is listed on the Bolsa de Madrid and has to report its revenues.

Its global revenue has fallen from €1.4 billion ($2.2 billion) in the first nine months of 2017 to €1.1 billion ($1.74 billion) in the same period in 2021. Its share price is in freefall. It slumped from €2.87 ($4.54) in 2017 to €0.57 ($0.90) this week as the pandemic shakes cash to its foundations.

In April, Prosegur’s managing director in Australia, Janine Copelin, told a parliamentary committee that times were tough: “When COVID came, it reduced our business by more than 50%, and it certainly hasn’t bounced back to pre-COVID day. A lot of businesses throughout COVID-19 had signs up saying: ‘Cash is not the preferred method of payment any more’.”

That’s a fair summary of the trend in most of the developed world, even before the pandemic, as this chart shows.

Still, Copeline forecasts at least some role for cash — as an emergency backup.

“If you think about what we face around business continuity in Australia, with floods and fires, technology can go down in the blink of an eye and there needs to be some reliable form of payment, so cash is going to have its place,” she said.

What if the place for cash is under the mattress?

Now it is important to be clear about one thing. When we say nobody is using cash any more, we refer only to spending. If you’re talking about saving? Cash is more popular than ever.

The RBA is printing shiny yellow $50 notes and luminous green $100s and loading them into ATMs, only to have them disappear without trace. They get withdrawn and never spent.

“Around half to three-quarters of banknotes on issue are estimated to be hoarded,” the RBA says.

This became acute in the pandemic, with people defending themselves against the collapse of the ATM system, the collapse of the financial system or perhaps the collapse of society.

“Since the onset of the pandemic, overall demand for banknotes has been extraordinarily high, with the value of banknotes in circulation increasing by around 20% between February 2020 and October 2021,” the RBA said.

When you’re hoarding cash, you want to do so in a space-efficient fashion. That means $5 notes are pointless. You want the big boys. And so it is that these days most notes are high denomination.

“Around 73% of the number, and 94% of the value, of banknotes in circulation are accounted for by the $50 and $100 denominations.” the RBA said.

Cash’s last gasp

With interest rates so low, the cost of holding cash outside of a bank has recently been insignificant. But with inflation on the horizon and the prospect of higher interest rates eventually applying to deposits, some of that hoarded cash might move back into the banking system.

Once that happens, it might never emerge again in physical form.

Using digital payments is getting easier, and using large sums of cash will soon come to look more and more unusual. After all, a major use for cash is in the black market. But even there, digital innovation is coming — bitcoin is digital cash, and if it can usurp the role of cash in dodgy deals, then cold hard cash might go the way of the horse and cart. Before long, movies featuring bank heists and armoured truck robberies might have to be historical fiction.

This article was first published by Crikey.